Fears of deflation have been exaggerated since the 2008 financial crisis according to former Bank of England (BoE) monetary policy committee member Andrew Sentance.
Speaking at the Workplace Pensions Live 2016 conference, Sentence described deflation as "the dog which has not barked" as he expects inflation to rise to around 1% or 2% in the near future from its current low levels, with 0.5% recorded in March.
"We are not in a deflationary world; growth is not far away from the long-term average," he said.
The pattern of growth in the global economy is shifting as emerging market growth falls back to an average of 4% to 5% while it picks up in the West to just over 2% a year.
"Divergence [between developed and emerging economies] means some economies are doing quite well. These differences in growth are not set to go away quickly," he added.
Sentence also explained what he terms the "post-crisis new normal economy" where the UK has record levels of unemployment despite lower than anticipated growth since 2008.
"Employment has picked up, particularly in the UK and Germany. There is a bit of mismatch where growth has been picking up in the West and has been relatively low with unemployment at boom time conditions. What reconciles those two positions is poor productivity growth," Sentance continued.
Such conditions presented investment opportunities for pension funds in technology, demographic shifts and structural changes in the economy.
However, "in this new normal, you need to be much more selective and work out where the investment opportunities lie," he warned.
Sentence is senior economic adviser to PwC.
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